For six years, a couple of entrepreneurially seasoned CAs trading have been delivering Alternative Investment goods for clients. Their firm, Innovate Alternative Assets and Solutions, uses its independence effectively by spreading clients’ funds among the most appealing private equity, venture capital, 12J and other alternative investment classes. In this interview, co-founder Anil Govind explains how Innovate outperforms – and why the tax-incentive 12B funds are so appealing right now. He spoke to Alec Hogg of BizNews.
Excerpts from the interview
Anvil Godin on the 12 J space and his experience there
In the 12JJ space. Our success came from firstly, we had objectivity and independence compared to a house trying to market a product. So from the early 2019, I think from the time we started, 2019 is when we really started, pushing that area. You know, when a government gives the incentive. It does help with the return because you get a return from the tax break and then you get the return from the investment base. And our view was to select two model trusts, opportunities to moderate high opportunities. Some of them were diversified portfolios and to high risk, which is more technology based. And now I think very successful returns have been showing. The moderate high has been kind of hitting those 12 to 15% mark. The moderate just has been around 7 to 8% and the high risks are generally around 20 to 30% is what we are getting from them. That’s a growth play in technology. So that mix of different opportunities and then linking to a client and say where would you like to fit in or would you like to diversify? view with maybe a major focus on the moderate high and a few punts on the high and and applying that as a bit older, we went a little bit more moderate to moderate high and so yeah that is a really nice and independents gave us options which a novel house wouldn’t be able to give it and also when a house sells to you the marketing team, when we share with the client it’s more about, you know, sharing opportunities in an independent way and we don’t have any alliance to any see house, we do what’s best for the client. And that’s a big thing that we all saw that many other direct private houses don’t have. But I say we’re one of the bigger raises in that space in the country.
Is there a secondary market in 12J investments or 12J assets
I think it’s a matter of the asset class. So maybe just to unpack that a little. generally income plays the capital being paid back and they either recover the capital and the return on a monthly basis. Some mechanism already pays back capital. So automatically assuming that will be paid out at least in the six years obviously, it’s at a five year tie in 12J. And when it comes to moderate high risk or so they generally the houses plan their exit so on most occasions you know expecting them to pay obviously liquidity is always an issue. So if you talk about an infrastructure space or alternative energy and you’re talking about fibre, those assets are in demand. And when you talk about technology, we did two technology plays pretty substantially and their houses that have seven or eight opportunities that they’re investing from machine learning to in a school management to, you know, gym management in various areas where with a proper use case and there the exit happens more when the house sells and opportunity won by one it’s not like you’re going to get paid already and the timeframe is 6 to 8 years. So I think in private equity and as institutions now it’s a longer play, the returns are better. They have a little bit more consistency because we have light of what we’re saying in terms of a business or an opportunity or a house. but liquidity can be a problem at times so I think that’s something as long as it’s will-able and can be transferred to the next party, that’s a good start . Yeah, but to answer your question is that there’s greater secondary market in the moderate to moderate high in the space.
Where do you put your clients money when you consider offshore alternative assets
So our main thing offshore is we like to find bespoke assets. So I’ll give you an example under a couple of sectors that we’ve been focusing on, we focus on property as an area and we focus on private equity in the SME space. And there’s a couple other multi asset examples, but let me take the property to unpack it a bit. So on the property side, we took an opportunity in the US, which is medical office buildings next to hospitals, which is a trend in the US based on that discovery type of model. I think there’s a move of about 15% from hospitals to in office procedures or day procedures. So that’s a very nice play. The IRR is 10%, 7% on the rental. buildings are pretty well occupied by more like 80, 90%. Some of them are 100% occupied triple net leases sometimes. And then you get another 3% or 15% when they sell the property. So you’re getting a 10% after tax return on a property asset class as opposed to getting on a listed environment and more like 4.4 Percent. That’s the average in the US for a medical property. And it’s got demand, higher demand than normal property as you saw in COVID. It showed a typical commercial property that’s a very disruptive time but medical office buildings still continue. People still get sick no matter what the climate is. And then we’re doing a property asset in the UK and believe in also currency diversification that’s in pounds, giving a 10% return if you want money paid out and 12% return if you capitalised for two years and you get your capital at 24% return. And these guys have been great for 20 years and basically they do property for Offtech. Yeah, so I’m shedding the details because the devil’s in the details, you know, like anybody can do property. But what we like about that is that Offtech environment you know, when you’re building for listed retailers like McDonald’s and Starbucks and you’re building for distribution warehouses where they either listed or they’re pretty sizeable and you’re building for a company that’s actually buying a property for rental. So at the end of a period of two years or 18 months or three years, you actually have an off-tick and that’s good in an environment like the UK where the inflation was very high and all of that. So like that’s an example. And then the private equity in Europe we’ve been focusing on the SME sector. They are much more resilient than corporate houses overseas. I do find it very interesting. So just to give you an example, we also like direct private debt, which is much more exciting than the bond yields overseas. Until this year, it’s just more like, you know, sometimes negative or 2% on average. The thing is, in the private environment, we get very nice returns in the fixed assets environment internationally and locally, we are focused on fixed debt with security.
On what gets them up in the morning
I think the starting point is that we want to help people have choices when they retire. That’s for me, helping a client get to their goal is key. 94% of people can’t retire in South Africa. That’s a stat 6% of South Africans get to retire. And for me. I think as someone with 30 years experience. That’s what I want to change. I want to change where people are getting into better assets. They understand the value of allocation in alternative assets, what it can do for them. And we’ve achieved that with our growth in the last six years. The way clients achieve a double digit return as a minimum. And that really makes a difference. You know, you earn like a 7% return, you know, your money only doubles in like nine years. And if you’re on 15%, it doubles every five years. And 12% is six and a half. And the multiple factor if you’re growing over 20 years is really totally substantial. So to answer your question, that’s what wakes me up.